What Is Accounts Payable?

What counts as accounts payable
How accounts payable differs from a loan

Accounts payable (AP) is the money your business owes suppliers for goods or services it has already received on credit but hasn't paid for yet. It's a current liability on your balance sheet. When a supplier's bill arrives, accounts payable goes up; when you pay the bill, it goes down.

Billed publishes this page. Definitions are quoted from the open textbook OpenStax Principles of Accounting, Volume 1, and US tax and records statements from IRS Publication 583, all opened on October 29, 2026. For how to treat a specific bill in your books or on your tax return, ask your accountant.

What counts as accounts payable

OpenStax defines it this way: "Accounts payable accounts for financial obligations owed to suppliers after purchasing products or services on credit." The supplier's invoice sets out the terms: OpenStax describes it as "detailing the purchase, credit terms, invoice date, and shipping arrangements" (OpenStax 12.1).

Accounts payable is a current liability, which OpenStax defines as "a debt or obligation due within a company's standard operating period". It adds: "A delineator between current and noncurrent liabilities is one year or the company's operating period, whichever is longer." Other current liabilities it lists include "unearned revenues, the current portion of a note payable, and taxes payable."

How accounts payable differs from a loan

OpenStax defines a note payable as "a debt to a lender with specific repayment terms, which can include principal and interest." A supplier bill is trade credit for something you bought; a loan is money borrowed from a lender.

How accounts payable is recorded

Accounts payable is a liability, so it increases with a credit and decreases with a debit. OpenStax's example of a purchase on credit: "Accounts Payable would increase (a credit) for the full amount due." When the bill is paid without a discount, "both Accounts Payable and Cash decreased" (OpenStax 12.2).

A supplier may offer a discount for paying early. OpenStax explains that with terms of 2/10, n/30, the buyer "has ten days to pay its balance due to receive a 2% discount"; otherwise it has "net thirty days" to pay in full, without the discount. How a discount is recorded depends on what you bought and how your books are kept, so ask your accountant.

Worked example (sample figures)

A sample design studio, invented for this example, keeps its books on the accrual basis. In May:

May 2: a print supplier's bill for $1,800 of printed materials arrives, due May 30.
- Debit Supplies Expense: $1,800
- Credit Accounts Payable: $1,800
May 15: a freelance illustrator's bill for $650 arrives, due June 14.
- Debit Contract Labor Expense: $650
- Credit Accounts Payable: $650
May 30: the studio pays the print supplier in full by bank transfer.
- Debit Accounts Payable: $1,800
- Credit Cash: $1,800

Each entry's debits equal its credits. Accounts payable at May 31:

Bills received: $1,800 + $650 = $2,450
Bills paid: $1,800
Accounts payable at May 31: $2,450 − $1,800 = $650, the illustrator's bill, due June 14.

The studio's May expenses are $2,450, even though only $1,800 of cash left the bank in May.

Accounts payable and your tax return (US)

IRS Publication 583 (revision 12/2024) says that under an accrual method, "You deduct or capitalize expenses in the tax year you incur them, whether or not you pay them that year." For the cash method, the publication ties the deduction to the year you pay, saying you deduct or capitalize expenses "in the tax year you pay them", with qualifications set out there. Which method your business uses, and how a particular bill is treated, is a question for your accountant.

Keep the paperwork. Publication 583 says that "Your supporting documents should show the amount paid and that the amount was for a business expense", and lists the documents that support expenses, including account statements, canceled checks, invoices, credit card sales slips and petty cash slips.

Simple controls for a small business

One place for bills. Send every supplier bill to one inbox or folder, so none is missed or entered twice.
Check before you approve. Compare each bill with what you ordered and what arrived, and with the agreed price.
Watch for duplicates. Record the supplier's invoice number with each bill, and check it before paying.
Separate approving from paying where you can. If one person does both, have the owner review each payment run.
Know the due dates and terms. Pay on time, and take an early-payment discount only when it makes sense for your cash.
Review open bills regularly. A list of unpaid bills by due date shows what's coming up and which bills are late. See the accounts payable aging report.

Accounts payable vs. accounts receivable

Accounts payable is what you owe suppliers, a liability. Accounts receivable is what customers owe you, an asset. An invoice you send a client is part of your accounts receivable and part of the client's accounts payable.

Where Billed fits

Billed's expense tracking page says: "An expense in Billed records who you paid, when, how much and which category it belongs to, with the receipt attached to the same entry." It also mentions saving "the vendors you buy from so repeat purchases take less typing", and says reports "can be filtered by date range and exported for your accountant, bookkeeper or tax software."

That covers money you've spent. The Billed pages I checked (/expenses-and-receipts-tracking/ and /features/) don't describe tracking unpaid supplier bills or an accounts payable balance, so keep those in your accounting system or with your bookkeeper. On the other side of the ledger, Billed's invoice software is for the invoices you send, which make up your accounts receivable.

When this guide isn't for you

This is an introduction for small businesses. Inventory purchases, discounts, sales tax on purchases and payables in other currencies involve accounting choices your accountant should make with you.

Frequently Asked Questions

Is accounts payable a debit or a credit?

Accounts payable is a liability, so it increases with a credit and decreases with a debit. When a supplier's bill arrives, you credit accounts payable; when you pay it, you debit accounts payable and credit cash.

Is accounts payable an asset or a liability?

A liability. It's money your business owes suppliers for goods or services received on credit, and it's reported as a current liability on the balance sheet.

What is the difference between accounts payable and accounts receivable?

Accounts payable is what your business owes its suppliers. Accounts receivable is what your customers owe your business. The first is a liability and the second is an asset.

What does 2/10, n/30 mean on a supplier bill?

You can take a 2% discount if you pay within ten days; otherwise the full amount is due within thirty days. How to record the discount depends on what you bought, so ask your accountant.

Is accounts payable the same as an expense?

No. An expense is the cost itself; accounts payable is the unpaid amount you still owe for it. In this page's sample, the studio's May expenses were $2,450, but only $650 was still owed at May 31 after it paid the $1,800 print bill.

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What Is Accounts Payable? A Simple Guide for Small Businesses